This involves borrowing money that must be repaid over time, usually with interest.
- Bank Loans: Traditional loans provided by banks for various business purposes like working capital, expansion, or equipment purchase. May include term loans or revolving credit lines.
- Term Loans: A lump sum of capital that is repaid over a set period with a fixed or variable interest rate. Typically for long-term needs.
- Lines of Credit: A flexible loan that provides businesses with access to a set amount of funds they can draw from as needed. Interest is paid only on the funds borrowed.
- SBA Loans: Small Business Administration (SBA) offers government-backed loans through banks for small businesses that might not qualify for traditional loans.
- Equipment Financing: Loans or leases specifically to purchase equipment, where the equipment itself often serves as collateral.
- Invoice Financing: Borrowing against outstanding invoices. The lender advances a portion of the invoice amount, and the business repays it when the customer pays.
- Merchant Cash Advance (MCA): A lump sum provided to a business in exchange for a percentage of future sales or receivables, often from credit card transactions.
2. Equity Financing
In this type, businesses raise capital by selling shares of the company.
- Venture Capital (VC): Investment from VC firms in exchange for equity, typically for high-growth companies. VCs often provide guidance and connections in addition to funding.
- Angel Investors: Wealthy individuals who provide early-stage capital in exchange for ownership equity or convertible debt.
- Equity Crowdfunding: Raising small amounts of money from a large number of people, typically through online platforms, in exchange for equity in the business.
- Private Equity: Larger investments, usually for mature businesses, in exchange for a significant share of the company or complete ownership.
3. Hybrid Financing
This involves a mix of debt and equity characteristics.
- Convertible Debt: A loan that can be converted into equity at a later date, typically when the company meets certain milestones.
- Mezzanine Financing: A hybrid of debt and equity financing, where the lender has the option to convert to equity if the loan isn’t repaid on time. Often used for expansion or acquisitions.
4. Short-Term Financing
Designed to help businesses with immediate, short-term needs.
- Microloans: Small loans, typically under $50,000, often used by startups or small businesses.
- Factoring: Selling accounts receivables at a discount to a third party (called a factor), which collects the payment from customers.
- Business Credit Cards: Credit cards tailored to business expenses, offering short-term funding and rewards like cashback or travel points.
- Bridge Loans: Short-term financing used to "bridge the gap" between longer-term financing solutions.
5. Alternative Financing
These options don’t typically involve traditional financial institutions.
- Crowdfunding (Rewards/Donation-based): Raising money through platforms like Kickstarter or GoFundMe where backers either donate or receive rewards instead of equity.
- Peer-to-Peer (P2P) Lending: Borrowing from individuals or groups via online platforms instead of through traditional banks.
- Revenue-Based Financing: Lenders provide capital in exchange for a percentage of future revenue until the investment is repaid, often used by businesses with consistent revenue streams.
6. Grants and Subsidies
Some businesses qualify for non-repayable funding.
- Government Grants: Federal, state, or local governments provide funding for specific industries, activities, or projects.
- Non-Profit Grants: Organizations may receive funding from foundations or other non-profits to pursue specific goals.
Each option has its own advantages and risks, and the best one for a business depends on its size, industry, growth stage, and specific financial needs.